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Latest Significant Court of Appeal Ruling

The Court of Appeal dismissed Grand China Logistics Holding (Group) Co Ltd appeal and upheld that the obligation to pay charterparty hire is not a condition.

On 7th October 2016, the Court of Appeal handed down its judgement in Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982. It upheld the judgement of the High Court confirming that the obligation for punctual payment of hire is an innominate term and not a condition of the contract.

This is a decision which will be of considerable significance to the shipping industry.

By way of brief background, the Claimant Owner in September 2011, gave notice of withdrawal with immediate effect for its three supramax bulk carriers as a result of the Defendant Charterer’s failure to pay the hire on time and in full. Spar Shipping A.S, the Owner, claimed substantial damages in respect of hire earned but not paid by Grand China Shipping Co Ltd (the Charterer’s subsidiary) prior to termination. Further, Spar Shipping A.S claimed damages for loss of bargain in relation to the remainder of three long-term time charters.

The Court of Appeal was called upon to decide on two key issues. Firstly, whether the term in the time charterparty requiring payment of hire on time was a condition or an innominate term (as introduced at Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26) and secondly, whether the conduct of the Charterers resulted in a renunciation of the contract based on the facts of the case.

The Court of Appeal found that it is a question of interpretation whether any particular term in a time charterparty is a condition or not. Based on the particular facts, the Court decided that the term of payment of hire on time and in full in the (three) charterparties was an innominate term adding that it was not clear from the construction of the clause whether the parties intended for the term to be a condition. Payment of hire will only be construed as a condition if there is express wording to that effect (see for example the NYPE 2015). Furthermore, the court decided that the Owner has no right to damages for loss of bargain. If the Owner wished to recover future losses following a withdrawal, it ought to be able to demonstrate a serious breach, amounting to repudiation by the Charterer, that deprived it from gaining substantially the whole benefit of the contract. A failure to pay is not the same as a refusal to pay. The Owner could have effectively and promptly withdrawn its ships and fix them with a new Charterer.

Concerning the Charterer’s conduct of not paying its hire on time and whether it amounted to a renunciatory or repudiatory breach, the Court adopted a three stage approach where any past or anticipated breaches of the payment provision, which amounted to a renunciation, involved a multifactorial assessment by the judges. The Court found that each case needs to be individually assessed on its merits and facts.

Conclusion

In contrast to the established commercial practice that Charterers have the obligation to pay hire on time and in full, the decision of the Court of Appeal demonstrates that Charterers’ failure to pay punctually under a time charterparty does not constitute a breach of condition. The judgement also provides helpful guidance on the legal principle of renunciation in the context of late and non-payment of hire by the Charterer.

The Court of Appeal’s judgement overturned the previous decision in The Astra [2013] EWHC 865 (Comm), where Mr Justice Flaux defined the Charterer’s obligation to make punctual hire payments under a time charter as a condition of the contact.

A copy of the judgment can be downloaded from the link below, and please feel free to contact this Firm should any further information or clarification of the above be required, or assistance with the practical effect/impact of this decision on current charterparties.